| Investment Property Depreciation Basics
Property investors often overlook depreciation, which can result in missing out on significant tax and cash-flow benefits. Depreciation refers to the decline in value of a building’s structure and the assets within it, which can be claimed as a deduction for residential rental properties in Australia.
Depreciation can be claimed under two categories: capital works and plant and equipment assets, such as furniture, carpets, curtains, hot water systems, and air-conditioners. Each item’s depreciation is calculated based on its effective lifespan as set by the ATO, typically between 5-10 years.
Capital works deductions are claims for general wear and tear to the structure of a rental property, including walls, roof, doors, and cupboards. If the property was constructed after September 15, 1987, or underwent renovations after that date, you may be eligible to claim capital works deductions over a period of 40 years.
To claim depreciation on a rental property, the easiest and most efficient way is to get a tax depreciation schedule prepared by a qualified quantity surveyor who will inspect the property and provide a report to your accountant. The depreciation schedule includes a list of the depreciable items and their decline in value over time, up to 40 years, using either the diminishing value method or prime cost method.
It’s important to note that when selling the property, the cost base must be reduced by the amount of building depreciation claimed, potentially increasing the capital gain. It’s best to speak with your accountant for specific advice regarding your situation. Overall, taking the time to learn about and claim depreciation deductions can help property investors avoid paying too much tax and maximize their returns.
Disclaimer: Although all care is taken. We do not give any warranty whatsoever to the accuracy of any content.
This is not meant to be financial or professional advice and is only of general nature. You must seek professional advice before taking any actions. The above information comes with no warranties whatsoever. We take no responsibility for any actions you may or may not take. All content is of general nature only and is NOT to be taken as advice whatsoever